|
Vol. 224 No. 6 |
|
 |
| DR. A. F. ALHAJJI, CONTRIBUTING EDITOR, MIDDLE EAST |
US energy policy and invasion of Iraq: Does oil matter? Iraqi oil is not the invasion’s objective, but it is the main tool to achieve invasion objectives. Many people believe that the US/British invasion of Iraq is motivated by desires to control the world’s second-largest oil reserves. They claim that the US wants to increase Iraqi production to lower oil prices and ensure cheap supplies to meet its ever-increasing, future demand. They also claim that US companies want to invest in Iraq’s oil industry, where the production cost is one of the world’s lowest.
Does US control of Iraqi oil fit US energy policy objectives? No, it does not! One of the main US energy objectives is to promote diversity of sources to avoid dependence on oil. Cheap Iraqi crude supplies would increase, not decrease US dependence on oil and prevent development of renewable and other energy forms.
A second US energy objective is lowering dependence on foreign oil sources, especially from the Middle East. Cheap Iraqi oil supplies would actually achieve the antithesis by reducing US output, increasing demand and boosting dependence on imports.
A third objective is diversity of petroleum imports to avoid heavy dependence on one country or group of countries. This objective certainly cannot be met by increasing dependence on Iraqi imports. Cheap Iraqi supplies would also discourage investment in new areas, especially offshore. Such a situation might force the US to concentrate its oil imports in the future, thereby increasing vulnerability to supply shocks.
A fourth objective is reduction of oil price volatility through various means, including competitive markets, transparency, adequate return on capital, and promoting oil production wherever possible. This requires relatively high oil prices that guarantee adequate returns on capital. Otherwise, volatility will increase. Therefore, the claims that the US wants to control Iraqi fields to satisfy its oil thirst are not correct. As I stated in my previous column last December, if the Bush administration’s objective is to ensure stable, secure, diverse and cheap oil supplies in the future, it can do so without going to war – it can do it by lifting the embargoes imposed on Libya, Iran, Iraq and Sudan.
In addition, if the US is after cheap Iraqi oil supplies, does it make sense for US companies to invest billions of dollars in Iraq to lower oil prices and profits, especially as affects their operations in other parts of the world? Indeed, Iraqi oil is not quite as cheap as some experts have claimed. Iraq is nearly land-locked; shipping its oil through diverse pipeline routes would make the crude more expensive than that of Saudi Arabia and Kuwait. I strongly believe that once the Iraqi people choose a government, the country’s oil contracts will not be as lucrative as some experts think.
What is the role of oil? Numerous incidents in history indicate a contradiction between the objectives of US foreign and energy policies. Whenever such contradiction occurs, foreign policy overrides energy policy.
Based on energy policy, there is no need for the US to control Iraqi oil supplies. However, US foreign policy objectives require such control for two reasons: 1) Oil is the source of the enemy’s strength, providing money and fuel; and 2) Oil revenues can finance regime change in Iraq without bothering the US taxpayer. Such financing includes the exclusion of groups that the US may not see fit to rule (or participate in ruling) Iraq. Therefore, oil is not the invasion’s objective, but it is one of the main tools to achieve the objectives, which include regime change.
Status of Iraqi oil contracts. Another contentious issue related to control of the Iraqi oil industry is the oil contracts that were signed after 1991. There are 27 international oil companies (IOCs) that signed or negotiated oil deals with Saddam Hussein in Iraq – six of them are Russian and the rest belong to 18 countries, including France and China.
While some US senior officials and Iraqi opposition leaders hinted that these contracts are no longer valid, or will be reviewed, Russian and French companies vowed to fight for their deals, despite the fact that (in most cases) no formal contracts were signed. However, many IOCs did sign MOUs with Saddam Hussein’s government.
Before the invasion, the Iraqi opposition questioned these contracts’ validity, promising to review them and give a bigger role to US companies that have been kept out of the process due to US and UN sanctions on Iraq. However, most international law experts argue that it is difficult to strip the IOCs out of their contracts, because legal titles survive a change of government, even a dictatorial regime.
In this case, Saddam Hussein’s government was the valid, effective, internationally recognized government of Iraq, and its contracts are valid and legitimate as long as due process was followed. Some experts argue that, ironically, the UN sanctions and negotiations with the deposed government legitimized the regime and its contracts!
However, some international legal experts caution that legitimacy of the regime is one thing, and these contracts’ due process is another. Any oil contract is subject to Iraqi law, international law and UN Security Council resolutions. A new Iraqi government can nullify some of these contracts if they violate any of these laws, mainly because of lack of due process. Some experts argue that since most of these deals are “political contracts,” it is not difficult to find flaws that invalidate them.
However, even if companies lose their contracts for one or more reasons, they likely will end up sharing these deals with other firms. Political and economic realities may force Russian and French companies to partner with American and British brethren. US companies would welcome the opportunity, because Russian and French firms have a technical advantage in data collection over the last few years. In addition, all parties, including the Iraqi people, will benefit from such partnerships by avoiding years of legal disputes in international courts. Otherwise, such disputes might hinder efforts to develop Iraqi oil fields for many years to come. 
Dr. A. F. Alhajji is an assistant professor of economics in the College of Business Administration at Ohio Northern University in Ada, Ohio, specializing in international and energy economics. Previously, he was an award-winning, visiting professor of economics at Colorado School of Mines. He is a regular contributor to this column.
|
